Hello, Is there any legal or taxtion issues or any other implications (like conflict of interest) for a builder to build IPs for himself? i.e. the builder buys the land, source funding then subdivide (if applicable) or just build one IP to rent out? and repeat the process. I understand that funding might be an issue as banks will classify this as owner builder, therefore LVR will be like 60%. and from my understanding selling will be +GST and any CGT etc.. I am asking these questions as I am thinking about heading that path. Thanks
No, builders do it all the time. I changed trades to do just this and I'm almost there. Few options possible. Build your own how, live in and sell tax free. Same but doing renovations and additions. I'm doing this at the moment as I can't lend due to only just finishing my time. Building speckies. This would be run as a business so gst and cgt included. I need to run this past my accountant before I head fully down this path. Obviously as builders we need to supply home warranty. I feel the tough bit is having the funding under control. It would most likely be a commercial or business loan if you aren't building a PPOR or if you don't have a cash stash.
its a slow process if you build, live in then sell, you would be looking at 3 years to do just one house, but it will be like you said tax free. I dont like doing renos, easier to knockdown and rebuild. Home warranty only needed if you are selling within ~6 years or so. my aim is to just build IPs for myself. I have a feeling that the ATO somehow wont like the idea of builder building for themselves, but again this is why this post is here. Cheers
Main residence exemption doesn't apply where the property is held on revenue account -even if living in it.
Hi Terry, Of course, one would separate such activities. From your experience and knowledge, is there any legal complications for builder to build for himself? Apart from financing, CBA advised me that they wont give me a loan even going owner builder path. He said to me the creditors will see your name on both the building contract and loan and they wont fund any investment with such relationship. Is he just playing with my head or is this true?
Lenders certainly aren't keen on Owner-Builder scenarios. They see them as extremely high risk and with good reason as the probability of defaults, incomplete projects, poor work, is considerably higher than when done via a third party building contract. This isn't really my speciality, but I'm sure the CBA can do it. What you've probably got is the bankers response (they don't know how so don't want to waste time on it). It may be that the CBA does this via their commercial section. Have a chat with the Bank of Melbourne. They come up quite a bit in these conversations.
Last time I spoke with CBA credit regarding owner builder, got told pretty much unless you're owner of a building company that's building 100-200 houses and you're pretty much just director sitting at the top that is not hands on... they're pretty much not interested for similar reasons Peter has provided.
ATO wont care that youre a builder building for yourself. It cares about what is taxable. GST on land, materials, trades etc. Whole profit taxed, no exemptions. Lots of deductions. Just like any other business. Im renovating for profit atm so I can build up to doing a new build without having to lend. Getting finance would be tough. Ill probably do a PPOR build and move into it (outside my business). This has no gst or cgt on sale just like every other owner occupied house in Aus.
I’ve had success with financing builders providing fixed price contracts in their company names to their personal names. It was done as a normal construction loan, not an owner builder. If the building company has HIA insurance etc, there isn’t any more risk for such a contract than the same contract with a third party. That said it’s been a couple of years since that example, and lending appetites change.
I spoke to my boss about this thread yesterday and the general issues related to builders building for themselves (he is a builder). He said he is in the process of changing over from a sole trader to a company structure so he can do just this - contract price from his company for his own builds.
they are liable if the property is new residential and sold - which is generally 5 years from the date of the occupancy certificate.
Thanks for that, financing will be hard because now CBA doesnt do any owner builders loans and ANZ only 80% of land value, so if your LVR is sitting at 80% you wont be able to borrow. LOC might be an option if you have equity somewhere. Good luck
